Shares of cement companies witnessed surge in buying activities on Wednesday after Finance Minister Nirmala Sitharaman on Tuesday indicated that the government would look at the industry's demand for cutting the 28% Goods and Service Tax (GST) rate for cement. During a post-budget interaction with the Confederation of Indian Industry (CII) leaders, the FM said the issue of a possible reduction in the GST rate on cement could be taken to the fitment panel under the GST Council.
Replying to a suggestion by infrastructure sector veteran Vinayak Chatterjee to consider a cut in the 28% GST levied on cement, she said, “On the GST, the end user in non-bulk cases… you are talking about individuals. Bulk cases, of course, it can be government or private sector undertaking projects…I will have the fitment committee look into it and then, if necessary, take it to the (GST) Council.”
The GST Council is expected to hold its 49th meeting in New Delhi on February 18, 2023, and it may consider GST tax rationalisation on cement.
Reacting to the news, shares of Ambuja Cement rallied as much as 3.6% to ₹397.55 on the BSE today. Similarly, UltraTech Cement, the country’s largest cement manufacturer, rose 3% to hit an intraday high of ₹7,291, while Ramco Cements climbed 3.5% to ₹726.50 during the session.
Among others, JK Lakshmi Cement and Orient Cement gained between 1-3%, while JK Cement, India Cements, and HeidelbergCement India jumped up to 4%.
Bucking the trend, ACC shares fell nearly 2%, while Shree Cement was trading flat with marginal losses.
While the long-term outlook for cement companies remains intact amid a major focus on the infrastructure sector, higher fuel costs, and inflationary pressure remain key risks in the near-term. In the Union Budget 2023, FM Nirmala Sitharaman announced a 33% hike in capital expenditure to ₹10 lakh crore in the next fiscal year, which is likely to boost cement consumption.
Global brokerage firm Jefferies believes a GST reduction from 28% to 18% would imply a 7-8% cut in customer pricing, which may boost volumes and is positive for pricing in the medium term. The brokerage said that cement demand is likely to improve over the next few quarters amid the budget’s focus on infrastructure growth as well as upcoming elections.
Recently, ICICI Securities, in the cement sector earnings preview, said that cement companies may see flat YoY EBITDA during the December quarter due to a marginal rise in realisation and easing of input cost (fuel) pressures. “There have been marginal price hikes (₹5/bag; in few regions) in Jan’23 with industry attempting another ₹10-15/bag in coming weeks. These hikes, coupled with a busy season (Q4) ahead, shall arrest the EBITDA fall and result in margin expansion Q4FY23 onwards,” it said in a report dated January 18, 2023.
On Tuesday, Ambuja Cements reported an increase in its profit for the first time after being acquired by the Adani Group last year from Holcim Ltd. The cement major posted a 13.2% year-on-year (YoY) increase in consolidated profit after tax (PAT) at ₹487.88 crore in October to December quarter in FY22, as against ₹430.97 crore in the year-ago period. The company’s revenue from operations surged by 3.7% YoY to ₹7,906 crore in the December quarter compared with ₹7,625.28 crore in the year-ago period. During the quarter, the company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) surged 6.1% to ₹1,138 crore as against ₹1,213 crore in the year-ago period. In Q3 FY23, the company’s cost was reduced on a quarterly basis to ₹283 PMT, while it registered a volume growth of 7% QoQ at 13.7 MTPA.
Meanwhile, UltraTech, a part of the Aditya Birla group, reported a 38% YoY drop in consolidated net profit for the October-December quarter at ₹1,058.20 crore. However, its revenue from operations rose 19.5% YoY to ₹15,520.93 crore. Its EBITDA increased by 37.9% to ₹3,335 crore from ₹2,419 crore in the year-ago quarter.
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